Aussie Trades Near 3-Year Low Versus Greenback on Rate Outlook

July 8 (Bloomberg) -- Australia’s dollar traded near its
lowest in almost three years versus the greenback on speculation
the Reserve Bank may cut interest rates as soon as next month.

The Aussie held a three-week drop before data this week
forecast to show the job market stagnated in June. The South
Pacific nation’s yield advantage over the U.S. is deteriorating
as the Federal Reserve considers scaling back its quantitative
easing program this year. New Zealand’s kiwi dollar rose after a
report showed house prices gained last month.

The Australian dollar slid 0.2 percent to 90.51 U.S. cents
as of 4:47 p.m. in Sydney from July 5. It reached 90.37 on July
3, the lowest since September 2010. New Zealand’s dollar climbed
0.2 percent to 77.24 U.S. cents, rebounding from a 1.6 percent
slide on July 5.

The yield on Australia’s 10-year government bond rose eight
basis points, or 0.08 percentage point, to 3.9 percent, after
earlier touching 3.998 percent, the highest since June 24.

The top forecaster of the Australian dollar over the past
year predicts a further slump, capping the worst annual loss
since the 2008 global financial crisis. Canadian Imperial Bank
of Commerce expects it to fall to 87 U.S. cents by Dec. 31, for
a 16 percent decline this year. The median estimate of 53
economists surveyed by Bloomberg is 91 U.S. cents.

‘Good Thing’

The Aussie’s depreciation so far this year “does provide
some support to manufacturers, and exporters in particular, and
that’s a good thing,” Australian Treasurer Chris Bowen said in
an interview broadcast by Sky News yesterday. It’s dropped 13
percent this year. “The terms of trade have fallen since the
budget. Against that, the Australian dollar has come down, so
there’s a countervailing impact.”

Manufacturing and services industries need to attract
investment and “soak up” employment as the Australian economy
undergoes a transition from an unprecedented investment boom in
mining, Bowen said.

The RBA has cut its benchmark interest rate to a record-low
2.75 percent to assist the shift toward employment-intensive
industries. Interest-rate swaps data compiled by Bloomberg News
show traders see a 47 percent chance the RBA will reduce the
rate to 2.5 percent at its next meeting on Aug. 6.

Australian Employment

Australian hiring probably stagnated last month, following
a 1,100 increase in May, according to the median economist
estimate in a Bloomberg survey before the July 11 report. Job
advertisements declined for a fourth month in June, falling 1.8
percent from the month before, Australia’s statistics bureau
said today.

UBS AG’s asset management business is “underweight” on
the Australian dollar, amid weakening demand for commodities.

“We think it should be valued about 10 percent below the
current levels, around 80 to 85 cents, to put it more in line
with fundamentals,” Jose Blanco, Zurich-based regional chief
investment officer for Europe, Middle East and Africa at UBS
Global Asset Management, said in a July 5 phone interview.

Blanco called the U.S. dollar “attractive,” a view
underscored by the currency’s gains after data indicated an
improvement in the jobs market.

The case for the Fed to begin tapering stimulus was
bolstered after a July 5 report showed payrolls increased by
195,000 in June for a second straight month. Chairman Ben S.
Bernanke said June 19 the central bank may reduce its monthly
$85 billion of bond purchases this year and end it in mid-2014
if growth meets policy makers’ estimates.

‘Inevitable’ Tapering

“Financial markets just have to accept the inevitable,
that the Fed is going to start tapering its monthly asset
purchases,” Westpac’s Rennie said. “And that is going to be an
important factor that will continue to weigh on the Australian
dollar.”

Speculation that stimulus will be reduced in the U.S.,
paired with bets of more RBA rate cuts, have made the Aussie the
worst performer in the past three months among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted
Indexes. It has tumbled 9.7 percent, compared with a 5.5 percent
rise by the greenback. The kiwi dollar has slumped 4.7 percent.

New Zealand’s currency was supported by a report that
showed housing prices rose last month, adding pressure on the
central bank to increase interest rates to prevent a housing
bubble. Prices gained 0.5 percent from May, and 5.9 percent from
a year earlier, according to the Real Estate Institute of New
Zealand.

Traders see a 36 percent chance the Reserve Bank of New
Zealand will raise the benchmark rate from a record-low 2.5
percent by its December meeting, according to swaps data
compiled by Bloomberg.